INTERNATIONAL STRATEGY
In carrying out business activities, both in the domestic and international
environment, companies are faced with various aspects related to the preparation of
business strategies. These aspects are related to the type of product produced, the
location of production and the location and method of marketing the product. The main
difference between business practices in domestic and international environments lies
in their level of complexity. This is because international companies have to choose
production locations among different countries. In addition, companies operating in
international markets also have a wider market scope. All of these factors will affect the
complexity of planning and preparing business strategies. This chapter discusses the
various stages in the identification of international strategies. The discussion in this
chapter also includes various types of international strategies and various important
factors that affect the selection of organizational structures. In the last section, there is
a discussion about the types of international organizational structures.
A. Stages of International Strategy Identification
The formulation of a business strategy can help managers to help managers in
knowing the direction of the company's operations, both for now and in the future
1. Identify Company Mission and Goals
The first stage of formulating a company's strategy is to identify the
company's mission and goals. Every company has a specific purpose that is
described by the company's mission statement. A mission statement is a written
statement of the purpose of the establishment of a certain company or business
and the plan that the company wants to achieve. The company's mission further
affects the company's decision regarding the type of industry and market
segmentation it wants to enter. Each company has a different mission statement.
Some companies have the goal of building a brand name. Other companies can
focus on other things such as return rates, market share or corporate social
responsibility. In general, the company's mission describes how the company's
operations affect stakeholders, namely all parties who are affected by the
company's activities such as consumers, employees, suppliers, and so on.
2. Identify Core Competency and Value-Creating Activities
After identifying the company's mission and goals, the next stage is to
identify the company's various core potentials. The determination of these core
competencies includes the company's internal capabilities and activities, the type
of industry, and the business environment in which the company operates. Core
competencies are special abilities of companies that are very difficult for other
companies to imitate. This ability is different from the proficiency possessed by
certain individuals. The core competencies of a company include a variety of
skills and capabilities that are coordinated in the form of specific technologies.
Although expertise or proficiency can be achieved through training programs,
the company's core competencies develop over a long period of time and are very
difficult to teach
The preparation of the company's strategy must be in accordance with the
company's strengths and market conditions. Thus, companies must conduct
value-chain analysis, which is the process of dividing company activities into
primary activities and support activities.
Various national uniqueness consisting of language, religion, culture,
customs and climate also affect the formulation of the company's strategy.
Language differences can increase operating and administrative costs. Marketing
activities can also be fatal without paying attention to the characteristics of the
local culture. Differences in political and legal systems also make it difficult to
formulate international strategies. This is because the company is obliged to
comply with all forms of regulations and regulations set by the local government.
In addition, the economic system that describes the behavior of local people
towards investment flows also has a great influence on the formulation of
international business strategies.
3. Formulate Strategies
After knowing the company's goals and missions as well as the various
core competencies and capabilities that the company has, then the company's
business strategy can be formulated. There are various types and levels in a
company's business strategy. For companies operating in the international
market, they can enter the market using international strategies. In addition,
companies must also strategize at the company, business and department levels.
The discussion of each type of strategy will be explained in the next section.
B. International Strategy and Enterprise-Level Strategy
There are two types of international strategies consisting of multinational strategies
and global strategies
1. Multinational Strategy
Some companies decide to use a multinational strategy or known as a
multinational (multidomestic) strategy. This multinational strategy is a strategy
that requires the adjustment of products and marketing activities to suit the
preferences of certain local markets. In other words, a multinational strategy is
the use of different strategies according to the characteristics of the country of
the company and marketing their products. The implementation of this strategy
requires the construction of new subsidiaries in each market. The subsidiary will
carry out product development, production and marketing activities
The main benefit of a multinational strategy is that the use of this strategy
allows companies to keep an eye on consumer preferences directly in each local
market. Thus, companies can respond quickly and effectively to changes in
consumer preferences. On the other hand, the main drawback of this strategy lies
in the use of multinational strategies that do not allow companies to take
advantage of economies of scale in product development, including product
manufacturing and marketing. This strategy is generally used by companies
operating in different types of industries where there are differences in consumer
preferences. One example is the food and beverage (F&B) industry
2. Global Strategy
Global strategy is a type of strategy that is described by offering the same
type of product and marketing style in all types of markets. Companies that use
this type of global strategy can generally take advantage of economies of scale,
which are characterized by the production of products in the most profitable
locations. This global strategy can be used by companies operating in types of
industries that have a high level of competition and pressure to lower production
costs. The main benefit of using a global strategy lies in the cost savings due to
the standardization of products and marketing systems. This production cost
savings can help companies achieve a large market share. On the other hand, the
use of global strategies also has drawbacks. One of the main drawbacks is that
the use of this strategy ignores the differences in consumer preferences in
different types of markets
To determine whether a company should use a multinational strategy or a
global strategy, the company must formulate a strategy at the corporate level,
business level strategy and department level.
a. Growth Strategy
A growth strategy is designed to increase the scale or scope of a
company's operations. Scale can be interpreted as a measure of a company's
activities, while scope includes various types of activities carried out by the
company. This company growth can be achieved through the company's
internal growth (organic growth). In addition, the company's growth can also
be achieved through mergers and acquisitions, joint ventures, and strategic
alliances. In this, the company can cooperate with various parties, including
competitors, suppliers and buyers with the aim of reducing the level of
competition and expanding the production line.
b. Retrenchment Strategy
Retrenchment strategy is the opposite of growth strategy, which is a type
of strategy that aims to reduce the scale or scope of the company's business.
Companies generally reduce the scale of their production when economic
conditions deteriorate or there is a high level of competition. This can be done
by closing the company's factory and laying off some employees. On the
other hand, companies can also reduce the scope of the company's business
activities by selling unprofitable business units.
c. Stability Strategy
A stability strategy is aimed at protecting the company against various
changes. Companies generally use this type of strategy to avoid increasing or
decreasing the scale and scope of the company. In this case, the company has
achieved the set goals and is satisfied with its conditions. The company
believes that the company's strengths have been utilized to the fullest and that
all the company's weaknesses have been protected. Thus, they tend not to
want to expand sales, increase profits, market share or consumer base.
d. Combination Strategy
Combination strategy aims to combine growth, retrenchment and stability
strategies throughout the company's business units. For example, a company
can use a growth strategy on a promising business unit that has a large profit
opportunity, and use a retrenchment and stability strategy on other business
units. This combination strategy is generally the most commonly used by
most companies
C. Business-Level Strategy and Department-Level Strategy
In addition to creating strategies at the company level, managers must also
develop different strategies for each business unit. However, there are some companies
that only have one single strategy, both at the company level and at the business level.
The key to strategizing at the corporate level lies in decisions related to competitive
advantages in a particular market.
business. The three strategies consist of low-cost leadership, differentiation, and
focus strategy. The following describes each of the three types of strategies.
1. Low-Cost Leadership
Low-cost leadership strategy is a strategy in which companies utilize
economies of scale to achieve the lowest cost structure. Companies that
implement this type of strategy generally seek to save on administrative costs,
marketing costs, advertising and distribution costs. Low-cost leadership
strategies can be used for product categories that have consumers with a high
level of price sensitivity. This strategy is also suitable for companies that have
standardized products and marketing promotions.
2. Differentiation Strategy
Differentiation strategy is a type of strategy when a company creates a
unique product for all buyers in a particular industry. The uniqueness of these
products allows companies to set higher price levels and can increase customer
loyalty. However, the perception of exclusivity generally encourages companies
to reduce their market share. Companies using this strategy must build a loyal
consumer base to cover higher production and marketing costs and as
compensation for a small market share. Companies can differentiate products by
improving their reputation for product quality. In addition, the company's
products can also be differentiated based on different brand names or images and
unique product designs.
3. Focus Strategy
Focus strategy is a type of strategy when a company focuses on meeting
the needs of a certain market segment, either through product differentiation,
low-cost leaders, or both. The high level of competition requires companies to
differentiate products, either based on quality, design, or product price. Focus
strategies are often aimed at consumers who are dissatisfied with existing
products or want different things. In this case, the company can design products
and marketing systems that are unique and in accordance with the desires and
preferences of consumers in a particular market segment
Department-level strategy focuses on specific activities that transform
existing resources into products. The formulation of strategies at the department
level is related to core competencies consisting of primary and support activities.
After these two types of activities, the company can develop a strategy by
utilizing the company's superior strengths. Every department of the company
involved in primary activities has an important role in creating value for
consumers, both through reducing production costs and differentiating products.
Manufacturing strategies play an important role in reducing production costs and
improving product quality. In addition, marketing strategies also affect the
company's image and consumer loyalty. In addition to manufacturing and
marketing activities, there are also logistics activities that aim to provide
production factors and various elements needed.
Support activities also play an important role in creating value for
consumers. R&D activities can help companies identify consumer needs in
specific market segments. Similarly, managers in the human resources (HR)
department can help improve efficiency by recruiting capable and trained
employees. Furthermore, the accounting and finance section can help efficient
information systems to assist managers in the decision-making process and
financial supervision.
D. Important Factors in the Selection of Organizational Structure
The organizational structure describes the way a company groups various company
activities into different units and coordinates between various units. An organizational
structure that is in accordance with the company's strategic plan can help the company
in achieving its goals. There are various important factors that affect the selection of
organizational structure as follows
1. Centralization versus Decentralization
An important thing that managers consider in the formation of
organizational structures is related to the level or degree of centralization or
decentralization in terms of decision-making. Centralized decision-making is
described as a decision-making process carried out by company executives at the
top of the organization and carried out by the main company office (headquarter).
On the other hand, decentralized decision-making focuses on spreading decision-
making activities at various lower levels of the company and can be carried out
by subsidiaries in various countries
Centralized decision making helps companies in coordinating the
company's operational activities from various subsidiaries spread across various
countries. This system is generally used by companies that have various business
lines spread across various international markets. This system is also important
to use when the output from a certain subsidiary acts as an input to the production
activities of other subsidiaries. The company can maintain control over financial
resources by requiring the distribution of profits earned by all subsidiaries to the
main holding company. In addition, companies can also establish policies,
procedures and standards that support a single global organizational culture.
Decentralized decision-making can be used when companies operate in a
business environment that is constantly changing. Decentralized decision
making can produce products that suit the needs and preferences of local
consumers. This is because managers in local subsidiaries understand consumer
characteristics better than managers in the main parent company.
2. Coordination dan Flexibility
In choosing an organizational structure, companies should also consider
efficient methods for coordinating each division of the company. The
determination of coordination methods, including this supervision mechanism,
is related to the problem of coordination and flexibility. Each type of company
must determine an organizational structure that is suitable for the existing
business environment. This organizational structure will further explain the
responsibilities and lines of authority from the top management level to the
employee level (chain of command). In addition, each company must also
develop an organizational structure that supports a high level of cooperation
between various divisions. The organizational structure of the company should
also not be permanent, but can be modified according to changes in the internal
and external environment. The organizational structure must also be adjusted to
the strategy used by the company. This is because the selection of organizational
structure is generally adjusted to the company's strategy.
Thus, if changes in the environment cause changes in the strategies used by the
company, then this will further affect the company's organizational structure.
E. Types of International Organizational Structures
There are various types of organizational structures that can be used by companies.
However, in general, there are four types of organizational structures that are often used
by international companies. The four types of organizational structures are division,
area, product and matrix structure. The following is an explanation of each type of
organizational structure.
1. International Division Structure
The international division structure divides the company's domestic and
international activities by creating separate divisions for international business
activities. In this case, the international division is specifically divided by
country, where the company conducts its business operations. In each specific
country, there is a general manager who is in charge of managing all production
and marketing activities of the company's products in that country. Thus, each
subsidiary in a different country will carry out their respective business activities
consisting of production, marketing, sales and financial activities.
2. International Area structure
The international area structure divides the company's global operations
by specific countries or geographical regions, as seen in Figure 13.6. In this case,
in each country or region there is a general manager who manages the company's
business operations in that country or region. Each unit of the company has a set
of specific departments such as purchasing, production, marketing, sales, R&D,
and accounting. In addition, each unit also tends to take care of their own
strategic plan. However, management executives at the parent company still
make decisions related to the overall company strategy and carry out
coordination activities between various units
The international area structure is very suitable for use by companies that
have unique markets in various countries. This strategy is generally used when
there are political, economic, and cultural differences between various countries
or regions. If managers have great power over business activities in a particular
environment, then they tend to better understand the uniqueness and
characteristics of buyers in a particular market segment
3. Global Product Structure
The global product structure divides the company's operations by product
area. This organizational structure is suitable for companies that produce various
products in their production lines. For example, a company that manufactures
electronic products produces three types of electronics, namely computers,
mobile phones, and televisions.
It is used to show a simple illustration of the organizational structure of a
global product. In the picture, it is shown that the parent company has three
production divisions and in each division there is a board of directors. In each
division, for example the mobile phone division heads the production area, for
example the Vietnam, Indonesia, Singapore and Thailand areas. In each of these
areas, there are each part of marketing, human resources, research and
development, and other parts. This global product structure has a main focus on
the products produced. Since each product has a division and a board of directors,
each overseas branch company needs to coordinate with the director of the
relevant product. Each product branch in Vietnam, Indonesia, Singapore and
Thailand needs to coordinate with the mobile phone product division located at
the head office.
4. Global Matrix Structure
The global matrix structure divides the chain of command system
between product divisions and regions. Chain of command can be interpreted as
a line of authority (from top managers to individual employees) that describes
an internal reporting system or relationship. In the case of each manager, he will
report to two leaders (bosses), namely the president of the product division and
the president of the geographic division. The main goal of this global matrix
structure is to combine managers in product divisions and regions in terms of
decision-making. This type of company structure is often used by companies that
want to reduce production costs and coordinate all of their international business
operations.
The global matrix structure can overcome various shortcomings of other
types of organizational structures, especially those related to inter-division
communication problems. However, this structure has two drawbacks. First, the
use of this organizational structure can slow down the decision-making process.
This is because meetings or meetings are often held with the aim of coordinating.
Second, individual responsibilities become unclear because managers can blame
each other in terms of poor company performance.
